**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**











**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended March 31, 2006**





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**000-31083**


**(Commission
      File Number)**






**MILLENNIUM
      CELL INC.**


**(Exact
      Name of Registrant as Specified in Its Charter)**











**Delaware**
            **22-3726792****(State
                or Other Jurisdiction of**
            **(I.R.S.
                Employer****Incorporation
                or Organization)**
            **Identification
                Number)**





**One
      Industrial Way West,**


**Eatontown,
      New Jersey 07724**


**(Address
      of Principal Executive Offices) (Zip Code)**





**(Registrant's
      telephone number, including area code) (732) 542-4000**








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. (as defined See definition of
      “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the
      Securities Exchange Act of 1934).





Large
                accelerated filer**☐**
            
            Accelerated
                filer**☐**
            
            Non-accelerated
                filerþ








Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 47,610,936 shares of Common Stock,
      par
      value $.001, were outstanding on May 12, 2006.










**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**Index**








**PART
      I - FINANCIAL INFORMATION**





**Page**Item
                1.
            Financial
                Statements (Unaudited)Consolidated
                Balance Sheets - March 31, 2006 and December 31, 2005
            1Consolidated
                Statements of Operations - Three months endedMarch
                31, 2006 and 2005 and cumulative amounts from inception
            2Consolidated
                Statements of Cash Flows - Three months ended March 31, 2006 and
                2005
            3and
                cumulative amounts from inceptionConsolidated
                Statements of Stockholders’ Equity - Three months ended March 31,
                2006
            4Notes
                to Consolidated Financial Statements - March 31, 2006
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            11Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            17Item
                4.
            Controls
                and Procedures
            18**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            19Item
                1A.
            Risk
                Factors
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            20
















Unless
      the context otherwise requires, all references to “we,” “us,” “our,” and the
“Company” include Millennium Cell Inc., and its wholly-owned subsidiary, MCE
      Ventures LLC.





Unless
      the context otherwise requires, all references herein to our Series A
      Convertible Preferred Stock and Series C Convertible Preferred Stock are
      references to our Series A2 Convertible Preferred Stock and Series C2
      Convertible Preferred Stock, respectively, to reflect the exchange offer we
      completed on June 30, 2005 with respect to such securities. For more information
      regarding the exchange offers, please refer to our Current Report on Form 8-K
      filed with the Securities and Exchange Commission on May 17, 2005 .





**FORWARD-LOOKING
      STATEMENTS**





This
      report contains forward-looking statements (within the meaning of the Private
      Securities Litigation Reform Act of 1995). These forward-looking statements
      reflect our current view about future events and financial performance and
      are
      subject to risks and uncertainties. Statements contained herein that are not
      statements of historical fact may be deemed to be forward-looking information.
      When we use words such as “plan,” “believe,” “expect,” “anticipate,” “on target”
and “intend” or similar expressions, we are making forward-looking statements.
      Investors should
      not rely on forward-looking statements because they are subject to a variety
      of
      risks, uncertainties and other factors that could cause actual results to differ
      materially from our expectations, and we expressly do not undertake any duty
      to
      update forward-looking statements or to publicly announce revisions to any
      of
      the forward-looking statements, whether as a result of new information, future
      events or otherwise. These
      factors include, but are not limited to, the following: (i) the cost and timing
      of development and market acceptance of, and the availability of components
      and
      raw materials required by, a hydrogen battery technology and hydrogen delivery
      system, (ii) the cost and commercial availability of the quantities of raw
      materials required by the hydrogen fuel storage and delivery systems, (iii)
      competition from current, improving and alternate power technologies, (iv)
      our
      ability to raise capital at the times, in the amounts and at costs and terms
      that are acceptable to fund the development and commercialization of our
      hydrogen battery technology and hydrogen delivery system and our business plan,
      (v) our ability to protect our intellectual property, (vi) our ability to
      achieve budgeted revenue and expense amounts, (vii) our ability to generate
      revenues from the sale or license of, or provision of services related to,
      our
      technology, (viii) our ability to enter into agreements with collaborators
      and
      strategic partners and the failure of our collaborators and strategic partners
      to perform under their agreements with us, (ix) our ability to generate design,
      engineering or management services revenue opportunities in the hydrogen
      generation or fuel cell markets, (x) our ability to secure government funding
      of
      our research and development and technology demonstration projects and (xi)
      other factors discussed under the caption “Risk Factors” in
      our
      Annual Report on Form 10-K for the year ended December 31, 2005.








**PART
      I - FINANCIAL INFORMATION**


**Item
      1.**  ***Financial
      Statements (Unaudited).***





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**





**March
                31,**
            
            **December
                31,****Assets**
            **2006**
            
            **2005**Current
                assets:Cash
                and cash equivalents
            $
            9,089,718
            
            $
            11,675,877Restricted
                cash
            
            362,942
            
            
            373,868Accounts
                receivable - trade
            
            42,256
            
            
            36,808Accounts
                receivable - government
            
            181,711
            
            
            112,462Prepaid
                expenses
            
            105,483
            
            
            237,867Deferred
                financing costs
            
            100,033
            
            
            102,270Total
                current assets
            
            9,882,143
            
            
            12,539,152Property
                and equipment, net
            
            396,276
            
            
            450,138Patents
                and licenses, net
            
            623,314
            
            
            654,876Restricted
                cash
            
            956,153
            
            
            1,208,191Investment
                in unconsolidated subsidiary (Note 7)
            
            896,173
            
            
            —Deferred
                financing costs
            
            108,369
            
            
            136,360Security
                deposits
            
            45,676
            
            
            45,676$
            12,908,104
            
            $
            15,034,393**Liabilities
                and stockholders' equity**Current
                liabilities:Accounts
                payable
            $
            496,452
            
            $
            521,615Accrued
                expenses
            
            941,737
            
            
            893,868Short-term
                portion of capital lease obligation
            
            —
            
            
            6,173Short-term
                portion of refundable grant obligation
            
            —
            
            
            49,611Deferred
                compensation
            
            101,050
            
            
            101,050Convertible
                unsecured debentures (Note 5)
            
            1,899,988
            
            
            2,399,988Total
                current liabilities
            
            3,439,227
            
            
            3,972,305Redeemable
                Series C preferred stock, net of discount (Note 5)
            
            4,989,644
            
            
            5,035,416Refundable
                grant obligation
            
            156,329
            
            
            156,329Commitments
                and contingenciesStockholders'
                equity:Series
                A preferred stock, $.001 par value; 1,694,724 authorized shares,
                155,724
                issued and outstanding as of March 31, 2006
            
            2,413,722
            
            
            2,413,722Series
                B preferred stock, $.001 par value; 1,539,000 authorized shares,
                none
                issued and outstanding as of March 31, 2006.
            
            —
            
            
            —Common
                stock, $.001 par value; authorized 70,000,000 shares and 47,700,936
                and
                46,454,375 shares issued and outstanding as of March 31, 2006 and
                December
                31, 2005, respectively
            
            47,701
            
            
            46,454Additional
                paid-in capital
            
            100,460,180
            
            
            99,942,349Deferred
                compensation
            
            —
            
            
            (596,296
            )Deficit
                accumulated during development stage
            
            (98,598,699
            )
            
            (95,935,886
            )Total
                stockholders' equity
            
            4,322,904
            
            
            5,870,343$
            12,908,104
            
            $
            15,034,393





See
      notes
      to financial statements.






1






**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**




**Three
                Months**
            
            **Three
                Months**
            
            **Cumulative****Ended**
            
            **Ended**
            
            **Amounts****March
                31,**
              **2006**
            
            **March
                31,**
              **2005**
            
            **From**
              **Inception**Revenue
            $
            69,882
            
            $
            79,901
            
            $
            1,871,509Cost
                of revenue
            
            69,882
            
            
            79,901
            
            
            1,750,182Gross
                margin
            
            —
            
            
            —
            
            
            121,327Product
                development and marketing
            
            905,187
            
            
            1,081,235
            
            
            24,478,291General
                and administrative
            
            1,018,738
            
            
            868,758
            
            
            26,631,203Restructuring
                expense
            
            —
            
            
            —
            
            
            104,982Non-cash
                charges (Note 4)
            
            190,586
            
            
            505,207
            
            
            28,946,590Depreciation
                and amortization
            
            137,187
            
            
            77,583
            
            
            3,124,199Research
                and development
            
            195,983
            
            
            217,742
            
            
            9,392,239Total
                operating expenses
            
            2,447,681
            
            
            2,750,525
            
            
            92,677,504Loss
                from operations
            
            (2,447,681
            )
            
            (2,750,525
            )
            
            (92,556,177
            )Interest
                expense, net
            
            161,832
            
            
            366,675
            
            
            4,236,124Equity
                in losses of unconsolidated subsidiary (Note 7)
            
            53,300
            
            
            —
            
            
            909,378Loss
                before income taxes
            
            (2,662,813
            )
            
            (3,117,200
            )
            
            (97,701,679
            )Benefit
                from income taxes
            
            —
            
            
            —
            
            
            1,253,861Net
                loss
            
            (2,662,813
            )
            
            (3,117,200
            )
            
            (96,447,818
            )Preferred
                stock amortization
            
            —
            
            
            —
            
            
            (2,150,881
            )Net
                loss applicable to common stockholders
            $
            (2,662,813
            )
            $
            (3,117,200
            )
            $
            (98,598,699
            )Loss
                per share — basic and diluted
            $
            (.06
            )
            $
            (.08
            )
            $
            (3.14
            )Weighted
                — average number of shares outstanding
            
            46,959,687
            
            
            40,173,960
            
            
            31,392,137











See
      notes
      to financial statements.











2





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**




**Three
                Months**
            
            **Three
                Months**
            
            **Cumulative****Ended**
            
            **Ended**
            
            **Amounts****March
                31,**
            
            **March
                31,**
            
            **From****2006**
            
            **2005**
            
            **Inception****Operating
                activities**Net
                loss
            $
            (2,662,813
            )
            $
            (3,117,200
            )
            $
            (96,447,818
            )Adjustments
                to reconcile net loss to net cash used in operating
                activitiesDepreciation
                and amortization
            
            137,187
            
            
            77,583
            
            
            3,124,199Amortization
                of discount on unsecured debentures
            
            54,227
            
            
            183,903
            
            
            2,633,056Amortization
                of deferred financing costs
            
            30,228
            
            
            66,151
            
            
            1,424,311Non-cash
                interest charges
            
            133,260
            
            
            65,399
            
            
            573,171Beneficial
                conversion feature
            
            35,000
            
            
            98,000
            
            
            2,057,582Losses
                on investment in unconsolidated subsidiary (Note 7)
            
            53,300
            
            
            —
            
            
            909,378Non-cash
                charges
            
            190,586
            
            
            505,207
            
            
            28,946,590Changes
                in operating assets and liabilities:Accounts
                receivable
            
            (74,697
            )
            
            161,013
            
            
            (223,967
            )Prepaid
                expenses and other assets
            
            132,384
            
            
            (35,636
            )
            
            (151,158
            )Accounts
                payable and accrued expenses
            
            (249,755
            )
            
            (329,019
            )
            
            2,041,482Deferred
                income
            
            —
            
            
            —
            
            
            2,399,988Net
                cash used in operating activities
            
            (2,221,093
            )
            
            (2,324,599
            )
            
            (52,713,186
            )**Investing
                Activities**Purchase
                of property and equipment
            
            —
            
            
            —
            
            
            (2,885,446
            )Patent
                registration costs
            
            (51,762
            )
            
            (33,272
            )
            
            (954,329
            )Investment
                in unconsolidated subsidiary (Note 7)
            
            (520,484
            )
            
            —
            
            
            (1,376,562
            )(Increase)/decrease
                in restricted cash
            
            262,964
            
            
            (8,759
            )
            
            (1,319,094
            )Net
                cash used in investing activities
            
            (309,282
            )
            
            (42,031
            )
            
            (6,535,431
            )**Financing
                activities**Proceeds
                from sale of common stock
            
            —
            
            
            1,172,755
            
            
            39,394,207Underwriting
                and other expenses of initial public offering
            
            —
            
            
            —
            
            
            (3,669,613
            )Proceeds
                from issuance of debentures
            
            —
            
            
            —
            
            
            21,428,806Proceeds
                from redeemable Series C preferred stock
            
            —
            
            
            —
            
            
            10,000,000Deferred
                financing costs
            
            —
            
            
            —
            
            
            (1,281,656
            )Capital
                lease obligation payments
            
            (6,173
            )
            
            (7,687
            )
            
            (86,184
            )Proceeds
                from capital contribution
            
            —
            
            
            —
            
            
            500,000Payment
                of note payable
            
            —
            
            
            —
            
            
            (250,000
            )(Payments)/proceeds
                from grant, net
            
            (49,611
            )
            
            —
            
            
            156,329Proceeds
                from sale of preferred stock
            
            —
            
            
            —
            
            
            2,146,446Net
                cash (used in)/provided by financing activities
            
            (55,784
            )
            
            1,165,068
            
            
            68,338,335Net
                increase (decrease) in cash and cash equivalents
            
            (2,586,159
            )
            
            (1,201,562
            )
            
            9,089,718Cash
                and cash equivalents, beginning of period
            
            11,675,877
            
            
            8,217,840
            
            
            —Cash
                and cash equivalents, end of period
            $
            9,089,718
            
            $
            7,016,278
            
            $
            9,089,718





Supplemental
      cash flow information


Please
      see note 6 for more information








3





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(Unaudited)**










**Additional**
            
            
            
            
            
            
            
            **Total****Common
                Stock**
            
            **Paid-in**
            
            **Deferred**
            
            **Series
                A**
            
            **Accumulated**
            
            **Stockholders'****Shares**
            
            **Amount**
            
            **Capital**
            
            **Compensation**
            
            **Preferred**
            
            **Deficit**
            
            **Equity**Balance
                at December 31, 2005
            
            46,454,375
            
            $
            46,454
            
            $
            99,942,349
            
            $
            (596,296
            )
            $
            2,413,722
            
            $
            (95,935,886
            )
            $
            5,870,343Reclassification
                of unearned stock compensationadoption of SFAS 123R
            
            —
            
            
            —
            
            
            (596,296
            )
            
            596,296
            
            
            —
            
            
            —
            
            
            —Issuance
                of common stock from conversion of debentures andSeries C Preferred Stock
            
            395,616
            
            
            396
            
            
            599,604
            
            
            —
            
            
            —
            
            
            —
            
            
            600,000Beneficial
                conversion feature on private placement transactions
            
            —
            
            
            —
            
            
            35,000
            
            
            —
            
            
            —
            
            
            —
            
            
            35,000Issuance
                of stock for interest payments
            
            92,640
            
            
            93
            
            
            133,074
            
            
            —
            
            
            —
            
            
            —
            
            
            133,167Issuance
                of common stock for 401(k)
            
            92,905
            
            
            93
            
            
            156,528
            
            
            —
            
            
            —
            
            
            —
            
            
            156,621Issuance
                of restricted stock for merit awards
            
            465,400
            
            
            465
            
            
            465
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Issuance
                of restricted stock for consulting
            
            200,000
            
            
            200
            
            
            (200
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                compensation expense
            
            —
            
            
            —
            
            
            190,586
            
            
            —
            
            
            —
            
            
            —
            
            
            190,586Net
                loss
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,662,813
            )
            
            (2,662,813
            )Balance
                at March 31, 2006
            
            47,700,936
            
            $
            47,701
            
            $
            100,460,180
            
            $
            —
            
            $
            2,413,722
            
            $
            (98,598,699
            )
            $
            4,322,904








See
      notes
      to financial statements.





4





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**








**NOTE
      1--BASIS OF PRESENTATION**





The
      consolidated financial statements include the accounts of Millennium Cell Inc.
      and its wholly owned subsidiary, MCE Ventures LLC. MCE Ventures is a Delaware
      limited liability company that was formed in 2002 to engage in limited strategic
      investment activities. All significant inter-company transactions and accounts
      have been eliminated.





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with U.S. generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all of the information and
      footnotes required by U.S. generally accepted accounting principles for complete
      financial statements. In the opinion of management, all known adjustments (which
      consist primarily of normal recurring adjustments) considered necessary for
      a
      fair presentation have been included. The interim statements should be read
      in
      conjunction with our Annual Report on Form 10-K/A for the year ended December
      31, 2005.





**NOTE
      2--EARNINGS PER SHARE**





Basic
      earnings per share (“EPS”) are computed by dividing income available to common
      stockholders by the weighted average number of common shares actually
      outstanding for the period. Diluted EPS reflects the potential dilution that
      could occur if securities or other contracts to issue common stock were
      exercised or converted into common stock or resulted in the issuance of common
      stock that then shared in the earnings of the Company. All such securities
      were
      anti-dilutive for all periods presented.





**NOTE
      3--STOCK BASED COMPENSATION**





In
      July
      2000, the Company adopted the Amended and Restated 2000 Stock Option Plan and
      reserved 8,500,000 shares of common stock, which includes shares that are
      allotted under the 401(k) plan. The plan provides for the granting of the
      following types of awards: stock options, stock warrants, stock appreciation
      rights, restricted stock awards, performance unit awards and stock bonus awards.
      Options and warrants issued under this plan have a life of ten years and
      generally vest ratably over three years. The specific terms and conditions
      of
      awards granted under the plan are specified in a written agreement between
      the
      Company and the participant.




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards (“SFAS”) No. 123R , “Share-Based
      Payment” (“SFAS 123R”) using the modified prospective transition method and
      therefore has not restated results for prior periods. Under this transition
      method, stock-based compensation expense for the first quarter of 2006 included
      compensation expense for stock-based compensation awards granted prior to,
      but
      not yet vested as of December 31, 2005, based on the grant date fair value
      estimated in accordance with the original provision of SFAS No. 123, "Accounting
      for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation expense
      for
      all stock-based compensation awards granted after December 31, 2005 will be
      based on the grant date fair value estimated in accordance with the provisions
      of SFAS 123R. During the three months ended March 31, 2006, the Company
      recognized compensation expense based upon the number of stock options and
      restricted stock awards expected to vest, which was determined based on
      historical turnover experience of the Company. The Company will review its
      forfeiture rate at each balance sheet date and revise its compensation
      expense, if necessary. The Company generally recognizes these compensation
      costs
      using the cliff vesting method over the requisite service period of the award,
      which is generally the vesting term of three years. Certain restricted stock
      awards are recognized using the graded vesting attribution method over the
      requisite service period of the restricted stock award. Prior
      to
      the adoption of SFAS 123R, the Company recognized stock-based compensation
      expense in accordance with Accounting Principles Board ("APB") Opinion No.
      25,
      "Accounting for Stock Issued to Employees" ("APB 25").




5




The
      impact to the consolidated financial statements, as a result of the Company’s
      adoption of SFAS 123R compared to continued recognition of stock-based
      compensation under APB 25, was an increase to net loss of $71,284 for the three
      months ended March 31, 2006. There was no impact on both basic and diluted
      earnings per share for the three months ended March 31, 2006. The increase
      to
      net loss that resulted from the adoption of SFAS 123R reflected the stock-based
      compensation expense associated with the unvested stock option awards.





Stock-based
      compensation expense previously recognized in accordance with APB 25 for
      restricted stock awards, remains essentially unchanged under the provisions
      of
      SFAS 123R. Restricted stock awards are issued at the fair value of the stock
      on
      the grant date. Prior to the adoption of FAS 123(R), unearned compensation
      for
      grants of restricted stock equivalent to the fair value of the shares at the
      date of grant was recorded as a separate component of shareholders' equity
      and
      subsequently amortized to compensation expense over the awards' vesting period.
      In accordance with FAS 123(R), shareholders' equity is credited commensurate
      with the recognition of compensation expense. All unamortized unearned
      compensation at January 1, 2006 was reclassified to additional paid-in capital.





The
      following table illustrates the effect on net loss and earnings per share for
      the three months ended March 31, 2005 as if the Company had applied the fair
      value recognition provisions of SFAS 123, as amended by SFAS No. 148,
      "Accounting for Stock-Based Compensation -- Transition and Disclosure.":







Net
                loss attributable to common stockholders — as reported
            
            $
            (3,117,200
            )Add:
                Total stock-based compensation expense included in net
                loss
            
            
            505,207Deduct:
                Total stock-based compensation expense determined under fair value
                based
                method for all stock option awards
            
            
            (580,899
            )Net
                loss attributable to common stockholders — Pro forma
            
            $
            (3,192,892
            )Net
                loss per share attributable to common stockholders — As
                reported
            
            $
            (0.08
            )Net
                loss per share attributable to common stockholders — Pro
                forma
            
            $
            (0.08
            )





The
      fair
      value of each option grant was estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions as of March 31, 2005:





Expected
                dividend yield
            —Expected
                stock price volatility
            .57Risk-free
                interest rate
            3.48%Expected
                option term
            5
                years





Based
      upon the above assumptions, the weighted average fair value of stock options
      granted at market was $1.22 for the first quarter of 2005.





Stock
      Options




The
      Company has awarded stock options to certain employees and directors. Stock
      options awarded to directors vest immediately. Stock options awarded to
      employees typically vest over three years. The Company did not issue any stock
      option awards during the three months ended March 31, 2006.











6











Option
      activity for all outstanding options, vested and nonvested, from January 1,
      2006 through March 31, 2006 was as follows:







**Shares**
              
              **Weighted-
                  Average Exercise Price**
              
              **Weighted-
                  Average Remaining Contractual Life**
                **(In
                  years)**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at December 31, 2005
              
              3,994,769
              
              $
              3.75
              
              
              6.4
              
              
              —Granted
              
              —
              
              
              —
              
              
              —
              
              
              —Exercised
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
                  and cancelled
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at March 31, 2006
              
              3,994,769
              
              
              3.75
              
              
              6.2
              
              $
              29,580Vested
                  and expected to vest at March 31, 2006
              
              3,795,031
              
              
              3.75
              
              
              6.2
              
              
              1,479Exercisable
                  at March 31, 2006
              
              3,698,740
              
              $
              3.75
              
              
              6.1
              
              $
              5,833









The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the closing stock price on the last trading day
      of
      the first quarter of 2006 and the exercise price, multiplied by the number
      of
      in-the-money options) that would have been received by the option holders had
      all option holders exercised their options on March 31, 2006. The intrinsic
      value changes based on the fair market value of the Company’s common stock.





As
      of
      March 31, 2006, there was $0.3 million of total unrecognized
      compensation expense related to stock options which is expected to be recognized
      over a weighted-average period of 2.8 years.




*Restricted
        Stock Awards*




Restricted
      stock awards generally
      vest in three to five years, or earlier, upon meeting certain accelerated
      vesting criteria, as defined. Restricted
      stock awards are stock-based awards for which the employee or director does
      not
      have a vested right to the stock (“nonvested”) until the requisite service
      period has been rendered or the required financial performance factor has been
      reached for each pre-determined vesting date. Restricted stock awards are
      generally subject to forfeiture if the employee is not employed or a director
      is
      not a member of the board of directors on the vesting date. Prior to vesting,
      restricted stock awards have all of the rights of common stock (other than
      the
      right to sell or otherwise transfer). The fair value of restricted stock awards
      is based on the market price of the Company’s common stock on the grant date of
      the award.





In
      March
      2006 and 2005, the Company issued 465,400 and 474,800 shares of restricted
      stock
      to employees with a fair market value of $763,256 and $1,044,560, respectively.
      These shares will vest in five years, or earlier, upon meeting certain
      accelerated vesting criteria, as defined. During the three months ended March
      31, 2006, the Company recorded $69,500 in non-cash charges for restricted stock
      issued to employees during the three months ended March 31, 2006 and 2005.
      The
      Company will recognize additional non-cash charges of $208,500 in the remainder
      of 2006 and an additional $986,646 will be recorded through 2010, or earlier
      if
      other accelerated vesting features are met.





The
      Company issued 200,000 shares of restricted stock awards to Ronald Kelley and
      Steven Pratt, the principal shareholders of Gecko Energy Technologies, Inc.
      (See
      Note 7), during the three months ended March 31, 2006. The issuance is in
      exchange for two consulting agreements with the Company. 50,000 shares of these
      restricted stock awards had a fair value of $72,500 at the date of grant and
      vest over a six-month period and the Company recorded a non-cash charge of
      $36,250 with respect to the vesting of these awards during the three months
      ended March 31, 2006. 150,000 shares of these restricted stock awards had a
      fair
      value of $232,500 at the date of grant and vest on a graded basis over three
      years and the Company recorded a non-cash charge of $13,552 with respect to
      the
      vesting of such award during the three months ended March 31, 2006. As
      prescribed by EITF No. 96-18 “Accounting for Equity Instruments That Are Issued
      to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
      or
      Services”, restricted stock awards issued to non-employees should be re-measured
      to fair value at each reporting date until the award vests. The final
      measurement date is on the date the award vests, rather than the grant-date
      measurement specified for most employee awards classified as equity. As a
      result, the Company recorded for both grants non-cash charges for the vested
      portion of the restricted stock awards to date and marked to market the unvested
      portion the remaining unvested restricted stock awards.






7





Changes
      in nonvested restricted stock awards during the three months ended
      March 31, 2006 were as follows:







**Number
                  of Shares**
              
              **Weighted-
                  Average Grant Date Fair Value**Nonvested
                  at December 31, 2005
              
              332,480
              
              $
              2.25Granted
              
              615,400
              
              
              1.62Vested
              
              (33,743
              )
              
              1.48Forfeited
              
              —
              
              
              —Nonvested
                  at March 31, 2006
              
              914,137
              
              $
              1.85











As
      of
      March 31, 2006, there was $1.5 million unrecognized stock-based
      compensation expense related to nonvested restricted stock awards. This expense
      is expected to be recognized over a period of up to five years.





**NOTE
      4--NON-CASH CHARGES**





During
      the three months ended March 31, 2006 and 2005, the Company recorded non-cash
      charges for stock-based awards. Please see Note 3 for more information on these
      awards.





The
      following is a breakdown by function of non-cash charges for the three months
      ended March 31:





**2006**
            
            **2005**Product
                development and marketing
            $
            15,779
            
            $
            113,195General
                and administrative
            
            169,170
            
            
            351,585Research
                and development
            
            5,637
            
            
            40,427Total
            $
            190,586
            
            $
            505,207





**NOTE
      5--PRIVATE PLACEMENTS**





*Convertible
      Debentures*





On
      November 8, 2002, the Company issued to the Ballard Power Systems Inc.
      (“Ballard”) a $2.4 million secured convertible debenture with a maturity
      date of November 8, 2005. On September 30, 2005, Ballard sold its debenture
      in
      equal amounts to three accredited institutional investors (the “Investors”) in a
      private transaction. In connection with such transfer, the Company issued an
      $800,000 secured convertible debenture, in substance identical to the Ballard
      debenture, to each of the Investors. On November 8, 2005, the Company issued
      an
      amended and restated convertible debenture (each, a “New Debenture”) to each of
      the Investors as consideration for the Investors’ agreement to surrender their
      original debentures and cancel the standby letters of credit issued by Wachovia
      Bank, National Association, that secured the original debentures, thus enabling
      the Company to use the formerly restricted cash for the Company’s operations.
      The principal changes to the term of the debentures consisted of the reduction
      of the initial conversion price from $4.25 to $2.25 per share, an extension
      of
      the maturity date to September 30, 2007, and the provision for 6% quarterly
      interest payments to the holders. No gain or loss was required to be recognized
      by the Company upon the exchange. In accordance with EITF 00-27 (“Application of
      Issue No. 98-5 to Certain Convertible Instruments”) and EITF 98-5 (“Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”), the Company is required to record a Beneficial
      Conversion Feature (“BCF”) interest charge if the Company elects to convert
      debentures early at a discount. During the three months ended March 31, 2006,
      the Company converted $500,000 of the New Debentures and recorded a BCF of
      $35,000 associated with such conversions





*Redeemable
      Series C Preferred Stock*




On
      April
      25, 2005, the Company consummated a private placement financing transaction
      with
      seven institutional and accredited investors who paid $10 million for 10,000
      shares of our redeemable Series C Preferred Stock (“Series C”) (which shares
      were subsequently exchanged for a like number of shares of redeemable Series
      C2
      Preferred Stock in an exchange offer conducted by the Company). Each Series
      C
      share is convertible into 500 hundred shares of our common stock, at any time,
      at an initial conversion price equal to $2 per share subject to adjustment
      based
      upon customary anti-dilution provisions, or lower based upon the market price
      of
      our common stock during the ten trading days preceding conversion. The shares
      of
      Series C bear a 7% cumulative dividend payable quarterly in shares of common
      stock or cash, at the Company’s option and are junior to the Series A and Series
      B preferred stock in liquidation preference. The Series C is subject to
      mandatory redemption by the Company three years after issuance and can be
      settled in cash or with the Company’s common stock. As a result, the Series C is
      recorded as a liability in accordance with FAS 150 “Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and Equity”).
      Additionally, the Company issued to the investors three-year warrants to
      purchase an aggregate of 1.25 million shares of the Company’s common stock at an
      exercise price equal to $2 per share, subject to adjustment based on customary
      anti-dilution protections. The warrants were valued at $1,021,928 at the date
      of
      issuance and were recorded as a discount to debt and as additional
      paid-in-capital on the balance sheet and are being amortized as interest expense
      throughout the term of the Series C or as they are converted, whichever comes
      first. During the three months ended March 31, 2006, the Company recorded
      $54,227 for the amortization of the discount.





Under
      the
      Series C purchase agreement, the Company is required to restrict funds for
      future dividends to be paid to Series C holders. As a result, these funds,
      which
      amounted to approximately $1,800,000 at issuance, were classified as restricted
      cash on the balance sheet. During the three months ended March 31, 2006, the
      Company issued 92,640 shares valued at $133,167 in satisfaction of the quarterly
      dividend payments with respect to Series C. These dividends were recorded as
      interest expense since the Series C was recorded as a liability as of March
      31,
      2006. According to the Series C purchase agreement, as dividends are issued
      or
      paid, and conversions are executed, the restricted cash is released ratably
      to
      our non-restricted cash accounts. During the three months ended March 31, 2006,
      the Company converted $100,000 of the Series C in exchange for 64,491 of the
      Company’s common stock. As of March 31, 2006, approximately $4.6 million of the
      Series C have been converted into 2,388,234 shares of the Company’s common stock
      and the Company has transferred $1,065,996 from the restricted cash account
      for
      the conversions that were executed and the dividends that were
      issued.





*Series
      A Preferred Stock*





On
      April
      25, 2005, the Company consummated the first closing under a joint development
      arrangement with The Dow Chemical Company (“Dow”). In connection with the
      closing, the Company issued 155,724 shares of Series A Preferred Stock
      to Dow (which shares were subsequently exchanged for a like number of shares
      of
      Series A Preferred Stock in an exchange offer conducted by the Company), each
      share of which is convertible into ten shares of our common stock. As a result
      of the Series A issuance in exchange for services rendered by Dow in conjunction
      with the joint development arrangement, we recorded a non-cash charge of
      $2,413,722 as product development expense based on the market value of the
      underlying common stock as of April 25, 2005. The Series A has substantially
      the
      same rights of our common stock, therefore the Series A was valued based on
      the
      close of our common stock on April 25, 2005.





The
      purpose of the joint development arrangement is for the two companies to jointly
      develop portable power solutions based on our Hydrogen on Demand® energy systems
      coupled with a fuel cell. The joint development arrangement has a three year
      term and each party may terminate the joint development arrangement under
      certain conditions. The joint development arrangement contemplates a series
      of
      four milestones designed to culminate in a commercially available product.
      The
      milestones are focused on military and/or consumer electronics applications.
      Achievement of each milestone, as defined in the joint development arrangement,
      in either military or consumer electronics applications will trigger an equity
      transaction at Dow’s option to purchase an additional $1.25 million of the
      Company’s preferred stock based on the market value of the common stock as
      defined in the joint development arrangement.





Upon
      the
      successful completion of each of the four milestones, Dow has a right, but
      not
      an obligation, to purchase a number of shares of the Company’s Series B
      Preferred Stock which is convertible into a number of shares of the Company’s
      common stock that could be purchased for $1,250,000 (based upon a purchase
      price
      equal to the volume weighted average price for the 30-trading day period prior
      to the date of issuance). If Dow purchases shares of the Company’s Series B
      Preferred Stock, Dow will also receive warrants to purchase a number of shares
      of the Company’s common stock that equals 25% of the number of shares of common
      stock issuable upon conversion of the Series B Preferred Stock. If Dow purchases
      shares of the Company’s Series B Preferred Stock in such instances, the Company
      will issue to Dow additional shares of Series A Preferred Stock such that Dow
      will own a certain percentage of the Company’s capital stock as of the date of
      issuance as provided in the Dow Stock Purchase Agreement. If Dow elects not
      to
      purchase shares of the Company’s Series B Preferred Stock upon completion of any
      milestone, the Company will issue to Dow a lesser number of additional shares
      of
      Series A Preferred Stock. See Note 8 for more information on milestones achieved
      with Dow.






8




**NOTE
      6--SUPPLEMENTAL CASH FLOW INFORMATION**





The
      Company issued 92,905 and 46,398 shares of common stock valued at $156,621
      and
      $62,960 to employees as 401(k) Plan employer matching contributions during
      the
      first three months of 2006 and 2005, respectively.





The
      Company issued 465,400 and 474,800 shares of common stock valued at $763,256
      and
      $1,044,560 to employees as restricted stock during the first three months of
      2006 and 2005, respectively. The Company also converted Series C and New
      Debentures during the three months ended March 31, 2006. See note 5 for further
      details on these conversions.





During
      the three months ended March 31, 2006, the Company issued 92,640 shares of
      common stock valued at $133,167 as dividend payments on the Series C Preferred
      Stock.





During
      the three months ended March 31, 2006, the Company issued 200,000 shares of
      common stock valued at $305,000 for two consulting agreements. See Note 3
      for more information.





**NOTE
      7--INVESTMENT IN GECKO ENERGY TECHNOLOGIES, INC.**





On
      February 15, 2006, the Company entered into a three-year joint development
      program with Gecko Energy Technologies, Inc. (“Gecko”) to collaborate on the
      development and commercialization of portable fuel cell systems for use in
      military, medical, industrial and consumer electronics applications. These
      products will pair the company’s patented Hydrogen on Demand® technology with
      Gecko’s thin planar Proton Exchange Membrane (PEM) fuel cells to create a
      hydrogen battery that is lighter, smaller and less expensive than traditional
      batteries for a variety of applications. Gecko’s efforts are focused on the
      development of an easy-to-manufacture fuel cell that provides portable device
      makers with design flexibility by allowing the thin power source to be part
      of
      the exterior surface of the device itself.





In
      connection with the joint development program, during the three months ended
      March 31, 2006 the Company acquired approximately 23% of the outstanding common
      stock of Gecko in exchange for $0.5 million in cash and a one-year, commitment
      of services and facilities valued at $0.5 million, which the Company believes
      is
      at arms length.  Pursuant to the joint development agreement with Gecko,
      later in 2006, the Company intends to increase its equity position to
      a total of 48% of Gecko’s outstanding common stock by investing another $1.05
      million in cash or the Company’s common stock. As part of the transaction, the
      Company received the right to acquire, at its sole option, up to 80% of Gecko
      over the remaining two years of the agreement at fair value of the common
      stock on the date of the acquisition (excluding shares issuable under Gecko’s
      benefit plans).





The
      Company’s investment in Gecko was accounted for using the equity method of
      accounting since the investment gives the Company the ability to exercise
      significant influence, but not control, over Gecko. Significant influence is
      deemed to exist since the Company has approximately 23% ownership interest
      in
      the voting stock of Gecko.   The Company has determined that Gecko is
      not a variable interest entity in accordance with FASB Interpretation No. 46R,
      "Consolidation of Variable Interest Entities".





**NOTE
      8--SUBSEQUENT EVENTS**





In
      April
      of 2006, the Company converted $332,000 of Series C Preferred Stock into 199,178
      shares of common stock. Also in April 2006, the Company converted $1,000,000
      of
      the New Debentures into 598,802 shares of common stock. The Company recorded
      a
      beneficial conversion feature charge in conjunction with the New Debenture
      conversion of $70,000.





On
      May 3,
      2006, the Company and The Dow Chemical Company agreed that the delivery by
      Protonex Technology Corporation of the Protonex P2 soldier power system to
      the
      U.S. Air Force achieved the first milestone under the joint development
      agreement. As a result, Dow is entitled to receive shares of the Company’s
      Series A Preferred Stock and is entitled to purchase $1.25 million of the
      Company’s Series B Preferred Stock (based on the dollar volume weighted average
      price of the Company’s common stock for the 30 trading days preceding the
      achievement of the first milestone). If Dow purchases shares of Series B
      Preferred Stock, it will also receive warrants to purchase a number of shares
      of
      common stock equal to 25% of the shares of common stock underlying the Series
      B
      Preferred Stock. If Dow does not elect to purchase shares of Series B Preferred
      Stock, it will only be entitled to receive a number of shares of Series A
      Preferred Stock convertible into a number of shares of common stock that is
      equal to the greater of (i) the number of shares of common stock that could
      be
      purchased for $625,000 (based on the dollar volume weighted average price of
      the
      Company’s common stock for the 30 trading days preceding the achievement of the
      first milestone) and (ii) 2% of the Company’s fully-diluted common stock. 
The Company will record a product development and marketing charge during the
      three months ended June 30, 2006 based on the fair value of the Series A
      Preferred Stock issued to Dow as a result of achieving the first
      milestone.




9




**Item
      2.** ***Management's Discussion and Analysis of Financial Condition and Results of
      Operations.***





The
      following discussion should be read in conjunction with the accompanying
      consolidated financial statements and notes thereto included within this report.
      In addition to historical information, this Form 10-Q and the following
      discussion contain forward-looking statements that reflect our plans, estimates,
      intentions, expectations and beliefs. See the discussion contained herein under
      the caption “Forward-Looking Statements” for more information. Our actual
      results could differ materially from those discussed in the forward-looking
      statements. The discussion below should be read in conjunction with the
      Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 .





**General**





We
      were
      formed as a Delaware limited liability company on December 17, 1998, and
      organized and began operations on January 1, 1999 (inception date). We were
      converted into a Delaware corporation on April 25, 2000 when all of the
      outstanding equity interests of the limited liability company were converted
      into shares of common stock of the corporation. Unless otherwise indicated,
      all
      information that we present in this Form 10-Q for any date or period gives
      effect to the conversion as if it had occurred on that date or as of the
      beginning of that period and all references to common stock for periods before
      the conversion mean our issued and outstanding membership interests.





**Overview**





We
      are
      engaged in the development of hydrogen battery technology for use primarily
      in
      portable electronic devices for the, military, medical, industrial and consumer
      markets. We are developing this technology in partnership with corporate and
      government entities. Hydrogen on Demand® is the trademarked name for our
      proprietary hydrogen energy storage and delivery technology. Our technology
      is
      based on the culmination of work reflected in more than 90 patents (granted
      or
      pending) that collectively provide us with a leading position in the system
      and
      fuel blend technology used to convert sodium borohydride to hydrogen energy
      for
      use in portable electronic device applications.





Our
      losses have resulted primarily from costs associated with product development
      and research and development activities as well as non-cash amortization of
      preferred stock and non-cash charges related to the issuance of stock options,
      restricted stock and warrants to employees and third parties. As a result of
      planned expenditures in the areas of research, product development and marketing
      and additional non-cash charges relating to employee stock awards, we expect
      to
      incur additional operating losses for the foreseeable future.





**Results
      of Operations**





***Three
      Months Ended March 31, 2006 versus Three Months Ended March 31,
      2005***





*Revenues* .
      Revenues for the three months ended March 31, 2006 were $69,882 compared to
      $79,901 for the same period of 2005, a decrease of $10,019. R evenues
      were earned from engineering and design. While in the development stage, our
      revenues are expected to fluctuate from year to year with the timing of
      prototype development and design services.





In
      the
      near-term, revenues are expected to be derived substantially from up-front
      license fees, research contracts with various federal, state and local agencies,
      collaborations with other companies, management services, and royalty payments
      or joint venture revenue from licensees or strategic partnerships. Revenues
      will
      be recognized in the period in which technology is delivered, licensing revenues
      are earned, or as services are performed.





*Cost
      of Revenues.* Cost of
      revenues for the three months ended March 31, 2006 were $69,882 compared to
      $79,901 for the same period of 2005, a decrease of $10,019.  Cost
      of
      revenues during the development stage represent the Product Development and
      Marketing expenses and Research and Development expenses associated with the
      revenues earned.






10





*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the three months ended March 31, 2006
      were $905,187 compared to $1,081,235 for the same period of 2005, a decrease
      of
      $176,048. The expenses decreased due to increased cost reimbursements from
      government funded programs in 2006 from 2005. This was a result of new contracts
      in late 2005 with the National Center for Manufacturing Services and the U.S.
      Army.





*General
      and Administrative Expense* .
      General
      and administrative expenses for the three months ended March 31, 2006 were
      $1,018,738 compared to $868,758 for the same period of 2005, an increase of
      $149,980. The increase was mainly the result of the professional and
      compensation fees associated with the ongoing development and future
      commercialization of the Company, as well as less general and administration
      cost recovery associated with the Department of Energy cost sharing
      arrangement *.*





*Non-cash
      Charges* .
      Non-cash charges were $190,586 for the three months ended March 31, 2006
      compared to $505,207 for the same period of 2005, a decrease of
      $314,621.  During
      the quarter ended March 31, 2006, we recorded non-cash charges of $49,802 for
      the amortization of restricted stock awards granted to Ron Kelley and Steve
      Pratt for two consulting agreements and $69,500 in non-cash charges for
      restricted stock issued to employees for the amortization of restricted stock
      issued in March 2006. In the first quarter of 2005, we recorded $449,161 in
      non-cash charges for restricted stock issued to employees which includes the
      amortization of restricted stock issued in March 2005, and the vesting of
      189,920 shares of restricted stock during March 2005 based on the Company’s
      performance of certain acceleration of vesting features in the restricted stock
      plan.





The
      following is a breakdown by function of non-cash charges for the three months
      ended March 31:





**2006**
            
            **2005**Product
                development and marketing
            $
            15,779
            
            $
            113,195General
                and administrative
            
            169,170
            
            
            351,585Research
                and development
            
            5,637
            
            
            40,427Total
            $
            190,586
            
            $
            505,207








*Depreciation
      and Amortization* .
      Depreciation and amortization was $137,187 for the three months ended March
      31,
      2006 compared to $77,583 for the same period of 2005, an increase of $59,604.
      This increase is mainly attributable to the accelerated amortization of the
      intellectual property that we are no longer maintaining.





*Research
      and Development Expense* .
      Research and development expenses were $195,983 for the three months ended
      March
      31, 2006 compared to $217,742 for the same period of 2005, a decrease of
      $21,759. We
      are
      reimbursed for expenses under the Department of Energy (“DOE”) program for the
      joint research of electrochemical pathways to manufacture sodium borohydride,
      which are recorded as a reduction to research and development expense.
      Reimbursements under the DOE program totaled $231,083 and $196,192 for 2006
      and
      2005, respectively.





*Interest
      Expense, net* .
      Net
      interest expense was $161,832 for the three months ended March 31, 2006 compared
      to $366,675 for the same period of 2005, a decrease of $204,843. The decrease
      was mainly attributable to less amortization of the discount associated with
      the
      unsecured debentures and the amortization of related deferred financing costs.
      Interest expense is comprised of interest on Series C Preferred Stock dividends,
      debenture principal, beneficial conversion features, amortization of original
      issue discounts and issue costs on our debentures. We converted $500,000 of
      unsecured debentures and $100,000 of Series C Preferred Stock in the first
      quarter of 2006 as compared to $3,400,000 of unsecured debentures into common
      stock for the first quarter of 2005.





**Liquidity
      and Capital Resources**





*General*





Since
      our
      inception, we have financed our operations primarily through our initial public
      offering in August 2000 and private placements of equity and debt securities.
      The net proceeds from our initial public offering totaled approximately $29.9
      million and we generated net proceeds from private placement transactions in
      2002 and 2003 totaling $14.1 million. In 2004, we received net proceeds of
      approximately $9.4 million from a separate private placement transaction. In
      April 2005, we received net proceeds of approximately $9.6 million for the
      issuance of redeemable Series C Preferred Stock.








11







*Convertible
      Debentures*





On
      November 8, 2002, we issued to the Ballard Power Systems Inc. (“Ballard”) a
      $2.4 million secured convertible debenture with a maturity date of November
      8, 2005. On September 30, 2005, Ballard sold its debenture in equal amounts
      to
      three accredited institutional investors (the “Investors”) in a private
      transaction. In connection with such transfer, we issued an $800,000 secured
      convertible debenture, in substance identical to the Ballard debenture, to
      each
      of the Investors. On November 8, 2005, we issued an amended and restated
      convertible debenture (each, a “New Debenture”) to each of the Investors as
      consideration for the Investors’ agreement to surrender their original
      debentures and cancel the standby letters of credit issued by Wachovia Bank,
      National Association, that secured the original debentures, thus enabling us
      to
      use the formerly restricted cash for our operations. The principal changes
      to
      the term of the debentures consisted of the reduction of the initial conversion
      price from $4.25 to $2.25 per share, an extension of the maturity date to
      September 30, 2007, and the provision for 6% quarterly interest payments to
      the
      holders. No gain or loss was required to be recognized by us upon the exchange.
      In accordance with EITF 00-27 (“Application of Issue No. 98-5 to Certain
      Convertible Instruments”) and EITF 98-5 (“Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios”), we are required to record a Beneficial Conversion Feature (“BCF”)
      interest charge if we elect to convert debentures early at a discount. During
      the three months ended March 31, 2006, we have converted $500,000 of the New
      Debentures and recorded a BCF of $35,000 associated with the conversions. In
      April 2006, we converted $1,000,000 of the New Debentures into 598,802 shares of common stock.
      We recorded a beneficial conversion feature charge in conjunction with the
      New
      Debentures conversion of $70,000.





*Redeemable
      Series C Preferred Stock*




On
      April
      25, 2005, we consummated a private placement financing transaction with seven
      institutional and accredited investors who paid $10 million for 10,000 shares
      of
      our redeemable Series C Preferred Stock (“Series C”) (which shares were
      subsequently exchanged for a like number of shares of redeemable Series C2
      Preferred Stock in an exchange offer conducted by us). Each Series C share
      is
      convertible into 500 hundred shares of our common stock, at any time, at an
      initial conversion price equal to $2 per share subject to adjustment based
      upon
      customary anti-dilution provisions, or lower based upon the market price of
      our
      common stock during the ten trading days preceding conversion. The shares of
      Series C bear a 7% cumulative dividend payable quarterly in shares of common
      stock or cash, at our option and are junior to the Series A and Series B
      preferred stock in liquidation preference. The Series C is subject to mandatory
      redemption by us three years after issuance and can be settled in cash or with
      our common stock. As a result, the Series C is recorded as a liability in
      accordance with FAS 150 “Accounting for Certain Financial Instruments with
      Characteristics of both Liabilities and Equity”). Additionally, we issued to the
      investors three-year warrants to purchase an aggregate of 1.25 million shares
      of
      our common stock at an exercise price equal to $2 per share, subject to
      adjustment based on customary antidilution protections. The warrants were valued
      at $1,021,928 at the date of issuance and were recorded as a discount to debt
      and as additional paid-in-capital on the balance sheet and are being amortized
      as interest expense throughout the term of the Series C or as they are
      converted, whichever comes first.





Under
      the
      Series C purchase agreement, we are required to restrict funds for future
      dividends to be paid to Series C holders. As a result, these funds, which
      amounted to approximately $1,800,000 at issuance, were classified as restricted
      cash on the balance sheet. As of March 31, 2006, we issued 227,373 shares valued
      at $370,602 in satisfaction of the quarterly dividend payments with respect
      to
      Series C. Total dividends of $499,096, which include dividends paid in cash
      and
      common stock were recorded as interest expense since the Series C was recorded
      as a liability as of December 31, 2005. According to the Series C purchase
      agreement, as dividends are issued or paid, and conversions are executed, the
      restricted cash is released ratably to our non-restricted cash accounts. During
      three months ended March 31, 2006, we converted $100,000 of the Series C in
      exchange for 64,491 of our common stock. As of March 31, 2006, approximately
      $4.6 million of the Series C have been converted into 2,388,234 shares of our
      common stock and we have transferred $1,065,996 from the restricted cash account
      for the conversions that were executed and the dividends that were
      issued.





*Series
      A Preferred Stock*





On
      April
      25, 2005, we consummated the first closing under a joint development arrangement
      with The Dow Chemical Company (“Dow”). In connection with the closing, we issued
      155,724 shares of Series A Preferred Stock to Dow (which shares were
      subsequently exchanged for a like number of shares of Series A2 Preferred Stock
      in an exchange offer conducted by us), each share of which is convertible into
      ten shares of our common stock. As a result of the Series A issuance in exchange
      for services rendered by Dow in conjunction with the joint development
      arrangement, we recorded a non-cash charge of $2,413,722 as product development
      expense based on the market value of the underlying common stock as of April
      25,
      2005. The Series A has substantially the same rights of our common stock,
      therefore the Series A was valued based on the close of our common stock on
      April 25, 2005.






12




The
      purpose of the joint development arrangement is for us and Dow to jointly
      develop portable power solutions based on our Hydrogen on Demand® energy systems
      coupled with a fuel cell. The joint development arrangement has a three year
      term and each party may terminate the joint development arrangement under
      certain conditions. The joint development arrangement contemplates a series
      of
      four milestones designed to culminate in a commercially available product.
      The
      milestones are focused on military and/or consumer electronics applications.
      Achievement of milestones, as defined in the joint development arrangement,
      in
      either military or consumer electronics applications will trigger equity
      transactions at Dow’s option to purchase an additional $1.25 million of our
      preferred stock based on the market value of the common stock as defined in
      the
      joint development arrangement.





Upon
      the
      successful completion of each of the four milestones, Dow has a right, but
      not
      an obligation, to purchase a number of shares of our Series B Preferred Stock
      which is convertible into a number of shares of our common stock that could
      be
      purchased for $1,250,000 (based upon a purchase price equal to the volume
      weighted average price for the 30-trading day period prior to the date of
      issuance). If Dow purchases shares of our Series B Preferred Stock, Dow will
      also receive warrants to purchase a number of shares of our common stock that
      equals 25% of the number of shares of common stock issuable upon conversion
      of
      the Series B Preferred Stock. If Dow purchases shares of our Series B Preferred
      Stock in such instances, we will issue to Dow additional shares of Series A
      Preferred Stock such that Dow will own ,together with the Series B shares and
      warrants, 4% of our fully diluted common stock. If Dow elects not to purchase
      shares of our Series B Preferred Stock upon completion of any milestone, we
      will
      issue to Dow a lesser number of additional shares of Series A Preferred
      Stock.





On
      May 3,
      2006, Millennium Cell and The Dow Chemical Company agreed that the delivery
      by
      Protonex Technology Corporation of the Protonex P2 soldier power system to
      the
      U.S. Air Force achieved the first milestone under the joint development
      agreement. As a result, Dow is entitled to receive shares of our Series A
      Preferred Stock and is entitled to purchase $1.25 million of our Series B
      Preferred Stock (based on the dollar volume weighted average price of our common
      stock for the 30 trading days preceding the achievement of the first milestone).
      If Dow purchases shares of Series B Preferred Stock, it will also receive
      warrants to purchase a number of shares of common stock equal to 25% of the
      shares of common stock underlying the Series B Preferred. If Dow does not elect
      to purchase shares of Series B Preferred Stock, it will only be entitled to
      receive a number of shares of Series A Preferred Stock convertible into a number
      of shares of common stock that is equal to the greater of (i) the number of
      shares of common stock that could be purchased for $625,000 (based on the dollar
      volume weighted average price of our common stock for the 30 trading days
      preceding the achievement of the first milestone) and (ii) 2% of our
      fully-diluted common stock.





*Investment
      in Gecko Energy Technologies, Inc.*





On
      February 15, 2006, we entered into a 3-year joint development program with
      Gecko
      Energy Technologies, Inc. (“Gecko”) to collaborate on the development and
      commercialization of portable fuel cell systems for use in military, medical,
      industrial and consumer electronics applications. These products will pair
      the
      Company’s patented Hydrogen on Demand® technology with Gecko’s thin planar
      Proton Exchange Membrane (PEM) fuel cells to create a hydrogen battery that
      is
      lighter, smaller and less expensive than traditional batteries for a variety
      of
      applications. Gecko’s efforts are focused on the development of an
      easy-to-manufacture fuel cell that provides portable device makers with design
      flexibility by allowing the thin power source to be part of the exterior surface
      of the device itself.





In
      connection with the joint development program, during the three months ended
      March 31, 2006, we acquired approximately 23% of the outstanding common stock
      of
      Gecko in exchange for $0.5 million in cash and a one-year, commitment of
      services and facilities valued at $0.5 million, which we believe is at arms
      length. Pursuant to the joint development agreement with Gecko, later in the
      year, we intend to increase our equity position to a total of 48% of
      Gecko’s outstanding common stock by investing another $1.05 million in cash
      or our common stock. As part of the transaction, we received the right to
      acquire, at our sole option, up to 80% of Gecko’s outstanding common stock over
      the remaining 2 years of the agreement at fair value of the common stock on
      the
      date of the acquisition (excluding shares issuable under Gecko’s benefit plans).






13




We
      issued
      200,000 shares of restricted stock awards to Ronald Kelley and Steven Pratt,
      the
      principal shareholders of Gecko, during the three months ended March 31, 2006.
      The issuance is in exchange for two consulting agreements with us. 50,000 shares
      of these restricted stock awards had a $72,500 fair value at the date of grant
      and vest over a six-month period and we recorded a non-cash charge of $36,250
      with respect to the vesting of these award during the three months ended March
      31, 2006. 150,000 shares of these restricted stock awards had a $232,500 fair
      value at the date of grant and vest on a graded basis over three years and
      we
      recorded a non-cash charge of $13,552 with respect to the vesting of these
      awards during the three months ended March 31, 2006.





As
      prescribed by EITF No. 96-18 “Accounting for Equity Instruments That Are Issued
      to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
      or
      Services”, restricted stock awards issued to non-employees should be re-measured
      to fair value at each reporting date until the award vests. The final
      measurement date is on the date the award vests, rather than the grant-date
      measurement specified for most employee awards classified as equity. As a
      result, we recorded for both grants non-cash charges for the vested portion
      of
      the restricted stock awards to date and marked to market the unvested portion
      the remaining unvested restricted stock awards.





*Sources
      and Uses of Cash*





As
      of
      March 31, 2006, we had $9,089,718 in cash and cash equivalents and restricted
      cash of $1,319,095. Cash used in operations totaled $2,221,093 and
      $2,324 ,599 during
      the three months ended March 31, 2006 and 2005, respectively, and related to
      primarily funding our net operating losses.





Excluding
      changes in restricted cash, investing activities used cash of $572,246
      and $33,272 during
      the three months ended March 31, 2006 and 2005, respectively. The primary driver
      for the increase in investing activities, was the $520,484 investment in Gecko. Restricted
      cash is comprised of $0.7 million as security on Series C Preferred dividends
      and $0.6 million of cash used for collateral as security deposit held by our
      landlord in connection with the amended lease agreement. These
      funds will not be available for use in operations until the letters of credit
      have been reduced or terminated. The $0.7 million of restricted cash related
      to
      the Series C Preferred will be available to us ratably as dividends are paid
      to
      the holders or as they are converted, whichever comes first.





*Off-Balance
      Sheet Arrangements*





We
      had no
      off-balance sheet arrangements as of March 31, 2006.





*Commitments
      and Contingencies*





In
      April
      2001, we amended our main operating lease to provide for additional space for
      our principal operating offices and laboratories. The amended lease will expire
      in 2008 and contains options to renew for an additional eight years and requires
      us to pay our allocated share of taxes and operating costs in addition to the
      annual base rent payment.





In
      connection with the amended lease agreement, we issued a letter of credit to
      the
      landlord for $588,972 in lieu of a cash security deposit. The letter of credit
      was collateralized with a portion of our cash and is classified as Restricted
      Cash. The funds used for collateral will not be available for use in operations.





Between
      January 1999 and April 2000, we received an aggregate of $227,522 from a
      recoverable grant award from the State of New Jersey Commission on Science
      and
      Technology. The funds were used to partially fund costs directly related to
      development of our technology. The recoverable grant is required to be repaid
      when we generate net sales in a fiscal year. The repayment obligation, which
      began in March 2001, ranges from 1% to 5% of net sales over a ten-year period.
      We are obligated to repay the unpaid amount of the original grant at the end
      of
      the ten-year period. As
      of
      March 31, 2006, we have repaid approximately $71,193.






14


.


Our
        contractual obligations are outlined in the table below:


**Payment
                due in fiscal years****Contractual
                Obligations**
              **Total**
            
            **2006**
              **(Nine
                months**
              **remaining)**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**Operating
                lease - Facility
            $
            1,291,493
            
            $
            363,233
            
            $
            484,310
            
            $
            443,950
            
            $
            3⁄4
            
            $
            3⁄4Refundable
                grant obligation
            
            156,329
            
            
            3⁄4
            
            
            3⁄4
            
            
            3⁄4
            
            
            —
            
            
            156,329Gecko
                Energy Technologies, Inc. (1)
            
            1,050,000
            
            
            1,050,000
            
            
            3⁄4
            
            
            3⁄4
            
            
            3⁄4
            
            
            3⁄4Convertible
                unsecured debentures (2)
            
            1,899,988
            
            
            3⁄4
            
            
            1,899,988
            
            
            3⁄4
            
            
            3⁄4
            
            
            3⁄4Redeemable
                Series C Preferred Stock (2)
            
            4,989,644
            
            
            —
            
            
            —
            
            
            4,989,644
            
            
            —
            
            
            —Total
            $
            9,387,454
            
            $
            1,413,233
            
            $
            2,384,298
            
            $
            5,433,594
            
            $
            —
            
            $
            156,329





*(1)*  *Gecko
      Energy Technologies, Inc can be satisfied with cash or with shares of our common
      stock.*





*(2)*  *Redeemable
      Series C Preferred Stock and Convertible Unsecured Debentures are convertible
      into common stock or can be satisfied with cash.*





We
      believe that our current cash and cash equivalents will be sufficient to satisfy
      anticipated cash needs of our operations through 2007. We may raise additional
      funds through public or private financing, collaborative relationships or other
      arrangements at any time. Additional funding, if sought, may not be available
      or, if available, may be offered at terms not favorable to us. Further, any
      additional equity financing may be dilutive to stockholders, and debt financing,
      if available, may involve restrictive covenants. Our failure to raise capital
      when needed may harm our business and operating results.





**Critical
      Accounting Policies**





*Application
      of Critical Accounting Policies*





The
      discussion and analysis of our financial condition and results of operations
      is
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect our reported assets and liabilities, revenues and
      expenses, and other financial information. Actual results may differ
      significantly from these estimates under different assumptions and conditions.
      In addition, our reported financial condition and results of operations could
      vary due to a change in the application of a particular accounting standard.





We
      regard
      an accounting estimate underlying our financial statements as a "critical
      accounting estimate" if the accounting estimate requires us to make assumptions
      about matters that are highly uncertain at the time of estimation and if
      different estimates that reasonably could have been used in the current period,
      or changes in the estimate that are reasonably likely to occur from period
      to
      period, would have had a material effect on the presentation of financial
      condition, changes in financial condition, or results of operations.





Our
      significant accounting policies are more fully described in Note 2 to our
      December 31, 2005 consolidated financial statements on Form 10K/A. Not all
      of
      these significant accounting policies, however, require management to make
      difficult, complex or subjective judgments or estimates. Our management has
      discussed our accounting policies with the audit committee of our board of
      directors, and we believe that our estimates relating to revenue recognition,
      convertible debt and stock options described below fit the definition of
      "critical accounting estimates."





*Revenue
      Recognition*





Our
      near-term revenues will be derived substantially from contracts that require
      the
      Company to deliver hydrogen generation technology, management services, system
      design and prototype systems and licensing of technology for test and
      evaluation. Revenues are recognized in the period in which the technology is
      delivered or licensed revenue is earned.






15





*Convertible
      Debt and Series C Preferred Stock*





We
      account for the issuance and conversion of convertible debt in accordance with
      APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants". As a result, we have and will record original issue discounts to
      the
      extent the fair value of the debt is below the face value of the instrument
      and
      amortize the discount over the life of the instrument. To the extent conversions
      of debt into common stock are made prior to the maturity date of the instrument,
      we will record as interest expense a ratable proportion of the discount
      associated with the face value of the debt converted.





We
      account for issuances of convertible debt in accordance with Emerging Issues
      Task Force ("EITF") No. 00-27, "Application of Issue No. 98-5 to Certain
      Convertible Instruments" ("EITF No. 00-27"), and EITF No. 98-5, "Accounting
      for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios" ("EITF No. 98-5"). As a result of certain
      conversion price discounts included within our outstanding debt instruments,
      we
      will record interest expense resulting from BCFs as described under the caption
      "Liquidity and Capital Resources" above.





*Stock-Based
      Compensation*




In
      the
      first quarter of 2006, we adopted SFAS No. 123(R), which requires the
      measurement at fair value and recognition of compensation expense for all
      share-based payment awards. Effective January 1, 2006, we began using the
      fair value method to apply the provisions of FAS 123(R) with a modified
      prospective application which provides for certain changes to the method for
      valuing share-based compensation. Under the modified prospective approach,
      the
      valuation provisions of FAS 123(R) apply to new awards and to awards that are
      outstanding on the effective date and subsequently modified or cancelled. Under
      the modified prospective application, prior periods are not revised for
      comparative purposes.




In
      accordance with FAS 123(R), we estimate the value of stock option awards on
      the
      date of grant using the Black-Scholes option-pricing model. The determination
      of
      the fair value of share-based payment awards on the date of grant using an
      option-pricing model is affected by our stock price as well as assumptions
      regarding a number of complex and subjective variables. These variables include,
      but are not limited to, our expected stock price volatility over the term of
      the
      awards, actual and projected employee stock option exercise behaviors, risk-free
      interest rate and expected dividends.




If
      factors change and we employ different assumptions in the application of FAS
      123(R) in future periods, the compensation expense that we record under FAS
      123(R) may differ significantly from what we have recorded in the current
      period. In addition, there is a risk that our estimates of the fair values
      of
      our share-based compensation awards on the grant dates may bear little
      resemblance to the actual values realized upon the exercise, expiration, early
      termination or forfeiture of those share-based payments in the future. Certain
      share-based payments, such as employee stock options, may expire worthless
      or
      otherwise result in zero intrinsic value as compared to the fair values
      originally estimated on the grant date and reported in our financial statements.
      Alternatively, value may be realized from these instruments that are
      significantly in excess of the fair values originally estimated on the grant
      date and reported in our financial statements.





**Item
      3.**   ***Quantitative
      and Qualitative Disclosures about Market Risk.***





Market
      risk represents the risk of loss that may impact our financial position,
      operating results or cash flows due to changes in U.S. interest rates. This
      exposure is directly related to our normal operating activities. Our cash and
      cash equivalents are invested with high quality issuers and are generally of
      a
      short-term nature. As a result, we do not believe that near-term changes in
      interest rates will have a material effect on our future results of operations.





Our
      systems' ability to produce energy depends on the availability of sodium
      borohydride, which has a limited commercial use and is not manufactured in
      vast
      quantities. There are currently only two major manufacturers of sodium
      borohydride and there can be no assurance that the high cost of this specialty
      chemical will be reduced. Once we commence full operations in the future, we
      may
      need to enter into long-term supply contracts to protect against price increases
      of sodium borohydride. As a result, we may be subject to commodity price risk
      in
      the future and there can be no assurance that we will be able to enter into
      agreements to protect against such risk.






16





**Item
      4.**   ***Controls
      and Procedures***





(a)
      Evaluation of Disclosure Controls and Procedures





We
      maintain a system of internal and disclosure controls and procedures designed
      to
      ensure that information required to be disclosed by us in the reports we file
      or
      submit under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and reported on a timely basis, and that such information is
      accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow timely decisions
      regarding required disclosure.





Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and our Chief Financial Officer, have evaluated the
      effectiveness of our disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934,
      as amended) as of the end of the period covered by this Quarterly Report. Based
      on such evaluation, our Chief Executive Officer and our Chief Financial Officer
      they have concluded that, as of the evaluation date, our disclosure controls
      and
      procedures are effective in alerting them on a timely basis to material
      information relating to us required to be included in our reports filed or
      submitted under the Securities Exchange Act of 1934.




Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      also conducted an evaluation of any changes in internal controls over financial
      reporting that occurred during the last fiscal quarter. That evaluation did
      not
      identify any significant changes to the Company’s internal control over
      financial reporting that have materially affected, or are reasonably likely
      to
      materially affect, the Company’s internal control over financial
      reporting.





(b)
      Changes in Internal Controls





Since
      the
      evaluation date, there have not been any significant changes in our internal
      control over financial reporting or in other factors that could significantly
      affect our internal control over financial reporting.







17








**PART
      II**





**Item
      1. Legal Proceedings.**





None.





**Item
      1A. Risk Factors.**





There
      have been no material changes from the risk factors previously disclosed in
      our
      Annual Report on Form 10-K for the year ended December 31, 2005.





**Item
      2.**   **Unregistered
      Sales of Equity Securities and Use of Proceeds.**




During
      the period covered by this report on Form 10-Q, we issued the following shares
      of our common stock (“Shares”) to an institutional and accredited investor
      (“Investor”) upon conversion of an aggregate amount of $500,000 principal amount
      of our unsecured convertible debentures and $100,000 of Series C Preferred
      Stock
      owned by the Investor:




**Date**
            **Amount
                of Unsecured**
              **Convertible
                Debentures**
            **Number
                of Shares of**
              **Common
                Stock****Issued**February
                24, 2006
            $166,667
            110,375February
                24, 2006
            $166,667
            110,375February
                28, 2006
            $166,666
            110,375






**Date**
            **Amount
                of**
              **Series
                C Preferred Stock**
            **Number
                of Shares of**
              **Common
                Stock****Issued**February
                28, 2006
            $100,000
            64,491









We
      issued
      the shares of common stock set forth above in reliance upon the exemption from
      registration under Section 3(a)(9) of the Securities Act of 1933. Section
      3(a)(9) is available because the shares of common stock were exchanged by the
      Company with an existing security holder and no commission or other remuneration
      was paid or given directly or indirectly for soliciting such exchange. The
      resale of the Shares by the Investor is registered pursuant to a registration
      statement declared effective by the Securities and Exchange
      Commission.




**Item
      3.**   **Defaults
      Upon Senior Securities.**





None.




**Item
      4.**   **Submission
      of Matters to a Vote of Security Holders.**





None.




**Item
      5.**   **Other
      Information.**





None.










18








**Item
      6.**  **Exhibits**







10.1†
            —
            Joint
                Development Agreement, dated as of February 15, 2006, by and between
                Millennium Cell Inc. and Gecko Energy Technologies, Inc. incorporated
                by
                reference to Exhibit 10.3 to the Current Report on Form 8-K filed
                with the
                SEC on February 15, 200610.2†
            —
            Stock
                Purchase Agreement, dated as of February 15, 2006, by and between
                Gecko
                Energy Technologies, Inc. incorporated by reference to Exhibit 10.3
                to the
                Current Report on Form 8-K filed with the SEC on February 15,
                200610.3†
            —
            Stockholders
                Agreement, dated as of February 15, 2006, by and among Gecko Energy
                Technologies, Inc. and Ronald J. Kelley and Steven D. Pratt. incorporated
                by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
                with
                the SEC on February 15, 200631.1*
            —
            Certification
                of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200231.2*
            —
            Certification
                of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200232.1**
            —
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of Sarbanes-Oxley Act of 2002


___________________


†  Previously
      filed.


*  Filed
      herewith.


**
      Furnished herewith.








19





**SIGNATURES**
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
 
 MILLENNIUM
        CELL INC.
 (Registrant)
 
 By:
        /s/ H. David
        Ramm
 H.
        David Ramm
 Chief
        Executive
        Officer
  
 By:
        /s/ John Giolli
 John
        Giolli
 Chief
        Financial Officer
 
 
 
 
 May
        15,
        2006


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